We expect YY to deliver solid 4Q19E results, forecasting its topline to grow 62% YoY in 4Q19E, and bottom line to decline 35% YoY, in line with consensus. We turn more positive on its overseas expansion, lifting Bigo’s revenue growth at 60% YoY in FY20E (vs. previous 45% YoY). But we cut bottom line by 27.5%/24.7% in FY20/21E, to reflect margin dilution of YY Core and limited impact from epidemic and regulation. Maintain BUY with slightly revised TP of US$74.
- Expecting solid 4Q19E. We expect YY’s revenue to grow 62% YoY in 4Q19E, and adj. net income declined 35% YoY (for Bigo’s consolidation), largely in line with consensus. We view its upcoming result as positive, on both solid financials and user metrics.
- Limited impact from epidemic and regulation. 1Q is typically weak season for livestreaming. We expect YY Core’s revenue to decline 5% YoY in 1Q20E, mainly on: 1) less other revenue (e.g. games); and 2) impact from epidemic and lucky draw features. Correspondingly, we forecast YY Core’s revenue to grow at 3% YoY in FY20E (vs. previous 5% YoY). Users metrics would trend well in 1Q20E, in our view. The epidemic might pose slight pressure on consumption power of mid-level spenders, but limited impact on top spenders. We adjusted YY Core’s non-GAAP OPM to 20% in FY20E (vs. previous 23%), for investment in new initiatives and content innovations.
- More positive on Bigo’s monetization. We turn more confident on its overseas expansion, and raised Bigo’s revenue by 9% in FY20E, suggesting 60% YoY growth (vs. previous +45% YoY), mainly on: 1) enhanced monetization of Bigo Live, with rising paying users of developed countries; and 2) Likee to begin monetization in FY20E, with livestreaming and ads. We view Bigo resilient to the epidemic, and kept its net loss forecast of US$150mn in FY20E unchanged. We expect Bigo to achieve monthly breakeven in FY20E, and overall breakeven in FY21E.
- Maintain BUY. We trimmed YY’s earnings by 27.5%/24.7% in FY20/21E, to reflect margin dilution of YY Core and impact from the epidemic & regulation. Maintain BUY with slightly revised TP of US$74, for Bigo’s higher valuation to offset YY Core’s earnings cut. Our TP is equivalent to 19.5x/13.8x FY20/21E P/E, based on: 1) YY Live (8x FY20E P/E); 2) Huya (based on mkt cap) and 3) Bigo (2x FY20E P/S).
